Stock Market Learning Index
Complete guide to master stock market trading
Foundation Concepts
Stock Market Basics
What is stock market and how it works?
Market Terms
All important market terminology
Trade Types
Different types of trades
Trading Styles
Various approaches to trading
Candlestick Patterns
Bullish, Bearish & Continuation patterns
Chart Patterns
Technical chart analysis
Support & Resistance
Key price levels identification
Market Analysis
Technical, Fundamental & Price Action
Advanced Trading
Types of Trade in Stock Market
Investing
In this you buy and hold shares for long period of time from time ranges from 1 year to as long as you want to hold. This is known as Investing.
Trading
In this you buy and sell shares in short period of time from time ranges from as low as 30 seconds or 1 minute to 1 month approximately. This is known as Trading.
Types of Investing
Equity Investing
In this you buy and hold shares for a long period of time from 1 year to as long as you want to hold. Equity investing is the purchase of a company's ownership stake, usually through shares or stocks. This gives the investor partial ownership of the company and the potential to profit from its future performance.
Time Range:
1 year to long-term
Benefits:
- • High returns potential compared to fixed-income investments
- • Dividend income from company profits
- • Easy liquidity - can be sold in the market
- • Portfolio diversification opportunities
Mutual Funds
A mutual fund is an investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities according to the fund's stated strategy. It allows individual investors to gain exposure to a professionally-managed portfolio and potentially benefit from economies of scale, while spreading risk across multiple investments.
Time Range:
Medium to long-term
Benefits:
- • Professional management
- • Diversification across multiple securities
- • Lower minimum investment requirements
- • Economies of scale benefits
ETF (Exchange Traded Funds)
An exchange-traded fund (ETF) is a basket of securities that trades on an exchange just like a stock does. ETF share prices fluctuate all day as the ETF is bought and sold; this is different from mutual funds, which only trade once a day after the market closes. ETFs offer low expense ratios and fewer broker commissions than buying the stocks individually.
Time Range:
Flexible - can be traded daily
Benefits:
- • Low expense ratios
- • Real-time trading throughout market hours
- • Tax efficiency
- • Transparency in holdings
Types of Trading
Equity Trading
In this you trade in various stocks of companies at the same price that's currently trading, without leverage (except in Intraday Trading). This involves shorter-term buying and selling to profit from price movements.
Time Range:
Short to medium-term
Benefits:
- • Potential for quick profits
- • Flexibility in market conditions
- • No long-term commitment required
- • Can capitalize on market volatility
Futures and Options
Futures and Options (F&O) are major types of stock derivatives trading in the share market. These are contracts signed by two parties for trading a stock asset at a predetermined price on a later date. Such contracts try to hedge market risks involved in stock market trading by locking in the price beforehand. They derive their price from an underlying asset such as shares, stock market indices, commodities, ETFs, and more.
Time Range:
Contract-specific durations
Benefits:
- • Hedging against market risks
- • Leverage opportunities
- • Price discovery mechanism
- • Portfolio protection strategies
Difference between Futures and Options
Future and option trading are different in terms of obligations imposed on individuals. While futures act as a liability on an investor, requiring them to follow up on a contract by a pre-set due date, an options contract gives an individual the right to do so.
| Aspect | Futures | Options |
|---|---|---|
| Obligation | Futures act as a liability on an investor, requiring them to follow up on a contract by a pre-set due date | Options contract gives an individual the right to buy/sell, but not the obligation, if they profit from a trade |
| Flexibility | Must be executed on the predetermined date at contractual price | Provides choice to execute only if profitable |
| Risk | Higher risk due to obligation to execute | Limited risk (premium paid) for buyers |
Types of Options
Put Options
Individuals entering an options contract to sell a particular asset at a pre-asserted price on a future date can do so by signing a put option contract.
Call Options
Individuals aiming to purchase a particular asset in the future can enter into a call option to lock in the price for future exchange.
Key Considerations
- • Risk Management: Different trade types have varying risk profiles
- • Time Commitment: Trading requires more active monitoring than investing
- • Capital Requirements: Some strategies need more initial capital
- • Market Knowledge: Complex instruments need deeper understanding
- • Tax Implications: Different holding periods have different tax treatments
- • Liquidity Needs: Consider how quickly you might need access to funds